CORRECTED (OFFICIAL)-UPDATE 1-Brexit will split financial markets, says Bank of England appointee

(Replaces Hall quote in paragraph 3 on fragmentation after BOE
clarified it referred to clearing houses with new paragraph 3
and 4 from a questionnaire to lawmakers)

By Huw Jones

LONDON, July 20 (Reuters) - Brexit will make markets less
efficient but it won't be disastrous for Britain's economy, an
appointee to the Bank of England's Financial Policy Committee
(FPC) said on Monday.

Britain left the European Union in January, with transition
arrangements that afford continued full access to the bloc
ending in December.

Jonathan Hall told the Treasury Select Committee that Brexit
represented a longer term risk of increased fragmentation and
complexity in financial services.

"This would increase friction costs for the economy, the
supervisory burden," Hall said in a questionnaire he completed
for the lawmakers.

Faced with an economy slammed by the COVID-19 crisis, Hall,
a former Goldman Sachs banker, is due to start a three-year term
on the FPC, a body set up after regulators failed to spot the
last financial crisis coming a decade ago.

Britain's financial sector is "quite different" in size and
complexity compared with its European peers, Hall told the
online meeting.

Future direct EU access for financial firms in Britain will
hinge on Britain remaining "equivalent" or aligned with rules in
Europe, but Hall said Britain can't be a "rule taker".

"It's very important that the UK does remain the regulator
for the financial market in the UK," he said.

Britain's banks, some of whom needed rescuing by taxpayers
in the last crisis, were in good shape when the COVID-19 shock
hit markets in March, he said.

It was "so far, so good" and there is no evidence that
tougher capital rules brought in after the last crisis were
restricting the ability of banks to lend to help businesses
recover from the impact of COVID, Hall said.

Britain is looking at ways for insurers, pension funds and
others to invest in firms struggling to repay loans taken out
during the pandemic.

"You can imagine some kind of closed-end fund that has a
very diversified pool of small and medium sized businesses. But
does the public sector need to do anything to help that along
given this needs to move faster?" Hall said.
(Reporting by Huw Jones; Editing by Andrew Heavens, Ken Ferris
and Alison Williams)